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  3. Starting up a business is easier in the service sector than in manufacturing. A new manufacturer has to invest heavily in factor

Starting up a business is easier in the service sector than in manufacturing. A new manufacturer has to invest heavily in factor

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问题     Starting up a business is easier in the service sector than in manufacturing. A new manufacturer has to invest heavily in factory premises, machinery and staff whereas a service sector start-up requires a much smaller initial investment. However, these new service sector firms often take a long time to build up a client base. They rely heavily on word of mouth to attract customers, a slow process that causes a few uncomfortable months while waiting for customers to arrive. With few customers, cash flow is minimal, but the start-up bank loan still has to be serviced, and there may be promotional costs like price cuts or free samples.
    In contrast, new manufacturers have to find more start-up capital. They take the risk of a high initial investment only because they know there is a ready market for their product. On the other hand, the service sector start-up is more speculative, based on the hope that people will want the service offered, so payback may be seriously delayed. But service sector start-ups have one big advantage over manufacturing. A restaurant, for example, could be set up in a few weeks, enough time to find premises, buy equipment "off the shelf" and recruit staff. A manufacturer, on the other hand, needs about a year to find suitable premises, install machinery and make deals with suppliers of materials. This delays the time taken for cash inflows to start offsetting the start-up costs for the manufacture.
    Cash flow is also influenced by the way demand may vary according to the time of year. Many manufacturers face a seasonal pattern of demand for their products, but the seasonality is more acute for many service sector firms. Manufacturers can produce stock before their seasonal peak, thus allowing them to spread the pressure on the production process. But for service providers who make most of their money during one peak period, seasonality increases the level of risk. If the peak season fails, e. g. ice cream sales crash because of a cold summer, the whole business could collapse before the next peak season.
    Even more importantly, service providers have to respond instantly to changes in customer demand. Any variation, whether caused by seasonal factors or changes in fashion, hits service providers immediately. This implies an even greater need for a market-oriented approach by service providers. There is, however, a positive aspect for service firms: unlike manufacturers, they are less likely to be caught with huge stocks of unwanted products.
    A firm’s financial success depends on adding value to its products, that is, selling its products at a price that is higher than the cost of making them. In setting a price, companies must ensure that their customers believe that the product or service is worth the price being charged. This is harder for service providers. Customers can calculate more or less the cost of providing a restaurant meal or painting a room. It’s much harder to judge the cost of manufacturing products like cars or refrigerators. Thus, service providers have to work much harder to add value to their services while avoiding any suspicion of overcharging. The implication of this is that manufacturers are likely to find it easier to trade with higher profit margins than service sector firms.
Manufacturers trade with higher profit margins because______.
选项 A、their initial investment is higher so they need a higher return
B、their customers have no idea about the cost involved
C、their cost includes a much higher budget for advertising and promotion
D、their products are generally more expensive to make
答案B
解析
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